Assignment one-BankingSubmitted to Submitted byMrs. Namita Bhandari Deep Jyoti DasCUN110501021
DEFINITION OF E-BANKINGElectronic banking, also known as electronic funds transfer (EFT), is simply the use of electronicmeans to transfer funds directly from one account to another, rather than by cheque or cash. Youcan use electronic funds transfer to:Have your paycheck deposited directly into your bank or credit union checking account.Withdraw money from your checking account from an ATM machine with a personalidentification number (PIN), at your convenience, day or night.Instruct your bank or credit union to automatically pay certain monthly bills from youraccount, such as your auto loan or your mortgage payment.Have the bank or credit union transfer funds each month from your checking account to yourmutual fund account.Have your government social security benefits check or your tax refund deposited directlyinto your checking account.Buy groceries, gasoline and other purchases at the point-of-sale, using a check card ratherthan cash, credit or a personal check.Use a smart card with a prepaid amount of money embedded in it for use instead of cash at apay phone, expressway road toll, or on college campuses at the librarys photocopy machineor bookstores.Use your computer and personal finance software to coordinate your total personal financialmanagement process, integrating data and activities related to your income, spending,saving, investing, recordkeeping, bill-paying and taxes, along with basic financial analysisand decision making.
VARIOUS FORMS OF E-BANKING:INTERNET BANKING:Internet Banking lets you handle many banking transactions via your personal computer. Forinstance, you may use your computer to view your account balance, request transfers betweenaccounts, and pay bills electronically.Internet banking system and method in which a personal computer is connected by a networkservice provider directly to a host computer system of a bank such that customer service requestscan be processed automatically without need for intervention by customer servicerepresentatives. The system is capable of distinguishing between those customer service requestswhich are capable of automated fulfillment and those requests which require handling by acustomer service representative. The system is integrated with the host computer system of thebank so that the remote banking customer can access other automated services of the bank. Themethod of the invention includes the steps of inputting a customer banking request from amonga menu of banking requests at a remote personnel computer; transmitting the banking requests toa host computer over a network; receiving the request at the host computer; identifying the typeof customer banking request received; automatic logging of the service request, comparing thereceived request to a stored table of request types, each of the request types having an attribute toindicate whether the request type is capable of being fulfilled by a customer servicerepresentative or by an automated system; and, depending upon the attribute, directing therequest either to a queue for handling by a customer service representative or to a queue forprocessing by an automated system.AUTOMATED TELLER MACHINES (ATM):An unattended electronic machine in a public place, connected to a data system and relatedequipment and activated by a bank customer to obtain cash withdrawals and other bankingservices. Also called automatic teller machine, cash machine; Also called money machine.An automated teller machine or automatic teller machine (ATM) is an electroniccomputerized telecommunications device that allows a financial institutions customers todirectly use a secure method of communication to access their bank accounts, order or makecash withdrawals (or cash advances using a credit card) and check their account balanceswithout the need for a human bank teller (or cashier in the UK). Many ATMs also allow peopleto deposit cash or cheques, transfer money between their bank accounts, top up their mobilephones pre-paid accounts or even buy postage stamps.On most modern ATMs, the customer identifies him or herself by inserting a plastic card with amagnetic stripe or a plastic smartcard with a chip, that contains his or her account number. Thecustomer then verifies their identity by entering a passcode, often referred to as a PIN (PersonalIdentification Number) of four or more digits. Upon successful entry of the PIN, the customermay perform a transaction.
If the number is entered incorrectly several times in a row (usually three attempts per cardinsertion), some ATMs will attempt retain the card as a security precaution to prevent anunauthorised user from discovering the PIN by guesswork. Captured cards are often destroyed ifthe ATM owner is not the card issuing bank, as non-customers identities cannot be reliablyconfirmed.The Indian market today has approximately more than 17,000 ATM’s.TELE BANKING:Undertaking a host of banking related services including financial transactions from theconvenience of customers chosen place anywhere across the GLOBE and any time of date andnight has now been made possible by introducing on-line Telebanking services. By dialing thegiven Telebanking number through a landline or a mobile from anywhere, the customer canaccess his account and by following the user-friendly menu, entire banking can be done throughInteractive Voice Response (IVR) system. With sufficient numbers of hunting lines madeavailable, customer call will hardly fail. The system is bi-lingual and has following facilitiesofferedAutomatic balance voice out for the default account.Balance inquiry and transaction inquiry in allInquiry of all term deposit accountStatement of account by Fax, e-mail or ordinary mail.Cheque book requestStop payment which is on-line and instantaneousTransfer of funds with CBS which is automatic and instantaneousUtility Bill PaymentsRenewal of term deposit which is automatic and instantaneousVoice out of last five transactions.SMART CARD:A smart card usually contains an embedded 8-bit microprocessor (a kind of computer chip). Themicroprocessor is under a contact pad on one side of the card. Think of the microprocessor asreplacing the usual magnetic stripe present on a credit card or debit card. The microprocessor onthe smart card is there for security. The host computer and card reader actually "talk" to themicroprocessor. The microprocessor enforces access to the data on the card. The chips in thesecards are capable of many kinds of transactions. For example, a person could make purchasesfrom their credit account, debit account or from a stored account value thats reload able. Theenhanced memory and processing capacity of the smart card is many times that of traditionalmagnetic-stripe cards and can accommodate several different applications on a single card. It canalso hold identification information, which means no more shuffling through cards in the walletto find the right one -- the Smart Card will be the only one needed.
Smart cards can also be used with a smart card reader attachment to a personal computer toauthenticate a user. Smart cards are much more popular in Europe than in the U.S. In Europe thehealth insurance and banking industries use smart cards extensively. Every German citizen has asmart card for health insurance. Even though smart cards have been around in their modern formfor at least a decade, they are just starting to take off in the U.S.DEBIT CARD:Debit cards are also known as check cards. Debit cards look like credit cards or ATM(automated teller machine) cards, but operate like cash or a personal check. Debit cards aredifferent from credit cards. While a credit card is a way to "pay later," a debit card is a way to"pay now." When you use a debit card, your money is quickly deducted from your checking orsavings account.Debit cards are accepted at many locations, including grocery stores, retail stores, gasolinestations, and restaurants. You can use your card anywhere merchants display your cards brandname or logo. They offer an alternative to carrying a checkbook or cash.E-CHEQUE:An e-Cheque is the electronic version or representation of paper cheque.The Information and Legal Framework on the E-Cheque is the same as that of the papercheque’s.It can now be used in place of paper cheques to do any and all remote transactions.An E-cheque work the same way a cheque does, the cheque writer "writes" the e-Chequeusing one of many types of electronic devices and "gives" the e-Cheque to the payeeelectronically. The payee "deposits" the Electronic Cheque receives credit, and the payeesbank "clears" the e-Cheque to the paying bank. The paying bank validates the e-Cheque andthen "charges" the check writers account for the checkOTHER FORMS OF ELECTRONIC BANKINGDirect DepositElectronic Bill PaymentElectronic Check ConversionCash Value Stored, Etc.
E-BANKING GLOBAL PERSPECTIVEThe advent of Internet has initiated an electronic revolution in the global banking sector. Thedynamic and flexible nature of this communication channel as well as its ubiquitous reach hashelped in leveraging a variety of banking activities. New banking intermediaries offeringentirely new types of banking services have emerged as a result of innovative e-business models.The Internet has emerged as one of the major distribution channels of banking products andservices, for the banks in US and in the European countries.Initially, banks promoted their core capabilities i.e., products, services and advice throughInternet. Then, they entered the e-commerce market as providers/distributors of their ownproducts and services. More recently, due to advances in Internet security and the advent ofrelevant protocols, banks have discovered that they can play their primary role as financialintermediators and facilitators of complete commercial transactions via electronic networksespecially through the Internet. Some banks have chosen a route of establishing a direct webpresence while others have opted for either being an owner of financial services centricelectronic marketplace or being participants of a non-financial services centric electronicmarketplace.The trend towards electronic delivery of banking products and services is occurring partly as aresult of consumer demand and partly because of the increasing competitive environment in theglobal banking industry. The Internet has changed the customers behaviors who are demandingmore customized products/services at a lower price. Moreover, new competition from pureonline banks has put the profitability of even established brick and mortar banks under pressure.However, very few banks have been successful in developing effective strategies for fullyexploiting the opportunities offered by the Internet. For traditional banks to define what nichemarkets to serve and decide what products/services to offer there is a need for a clear andconcise Internet commerce strategy.Banking transactions had already started taking place through the Internet way back in 1995.The Internet promised an ideal platform for commercial exchange, helping banks to achieve newlevels of efficiency in financial transactions by strengthening customer relationship, promotingprice discovery and spend aggregation and increasing the reach. Electronic finance offeredconsiderable opportunities for banks to expand their client base and rationalize their businesswhile the customers received value in the form of savings in time and money.Global E-banking industry is covered by the following four sections:E-banking Scenario: It discusses the actual state, prospects, and issues related to E-bankingin Asia with a focus on India, US and Europe. It also deals with the impact of E-banking onthe banking industry structure.E-banking Strategies: It reveals the key strategies that banks must implement to derivemaximum value through the online channel. It also brings guidance for those banks, whichare planning to build online businesses.
E-banking Transactions: It discusses how Internet has radically transformed bankingtransactions. The section focuses on cross border transactions, B2B transactions, electronicbill payment and presentment and mobile payments. In spite of all the hype, E-banking hasbeen a non-starter in several countries.E-banking Trends: It discuses the innovation of new technologies in banks.E-BANKING SCENARIO:The banking industry is expected to be a leading player in E-business. While the banks indeveloped countries are working primarily via Internet as non-branch banks, banks in thedeveloping countries use the Internet as an information delivery tool to improve relationshipwith customers.In early 2001, approximately 60 percent of E-business in UK was concentrated in the financialservices sector, and with the expected 10-fold increase of the British E-business market by 2005,the share of the financial services will further increase. Around one fifth of Finish and Swedishbank customers are banking online, while in US, according to UNCTAD, online banking isgrowing at an annual rate of 60 percent and the number of online accounts has approximatelyreached 15 million by 2006.Banks have established an Internet presence with various objectives. Most of them are using theInternet as a new distribution channel. Financial services, with the use of Internet, may beoffered in an equivalent quantity with lower costs to the more potential customers. There may becontacts from each corner of the world at any time of day or night. This means that banks mayenlarge their market without opening new branches. The banks in US are using the Web to reachopportunities in three different categories i.e., to market information, to deliver banking productsand services, and to improve customer relationship.In Asia, the major factor restricting growth of E-banking is security, in spite of several countriesbeing well connected via Internet. Access to high-quality E-banking products is an issue as well.Majority of the banks in Asia are just offering basic services compared with those of developedcountries. Still, E-banking seems to have a future in Asia. It is considered that E-banking willsucceed if the basic features, especially bill payment, are handled well. Bill payment was themost popular feature, cited by 40 percent of respondents of the survey. However, providing thisservice would be difficult for banks in Asia because it requires a high level of security andinvolves arranging transactions with a variety of players.In 2001, over 50 percent of the banks in the US were offering E-banking services. However,large banks appeared to have a clear advantage over small banks in the range of services theyoffered. Some banks in US were targeting their Internet strategies towards business customers.Apart from affecting the way customers received banking services; E-banking was expected toinfluence the banking industry structure. The economics of E-banking was expected to favorlarge banks because of economies of scale and scope, and the ability to advertise heavily.
Moreover, E-banking offered entry and expansion opportunities that small banks traditionallylacked.In Europe, the Internet is accelerating the reconfiguration of the banking industry into threeseparate businesses: production, distribution and advice. This reconfiguration is being furtherdriven by the Internet, due to the combined impact of:The emergence of new and more focused business modelsNew technological capabilities that reduces the banking relationship and transaction costs.High degree of uncertainty over the impact that new entrants will have on current businessmodels.Though E-banking in Europe is still in the evolutionary stage, it is very clear that it is having asignificant impact on traditional banking activities. Unlike in the US, though large banks in theEurope have a competitive edge due to their ability to invest heavily in new technologies, theyare still not ready to embrace E-banking. Hence, medium-sized banks and start-ups have animportant role to play on the E-banking front if they can take concrete measures quickly andeffectively.
THE INDIAN EXPERIENCEIndia is still in the early stages of E-banking growth and development. Competition and changesin technology and lifestyle in the last five years have changed the face of banking. The changesthat have taken place impose on banks tough standards of competition and compliance. Theissue here is – Where does India stand in the scheme of Ebanking. E-banking is likely to bring ahost of opportunities as well as unprecedented risks to the fundamental nature of banking inIndia.The impact of E- Banking in India is not yet apparent. Many global research companies believethat Ebanking adoption in India in the near future would be slow compared to other major Asiancountries.Indian E-banking is still nascent, although it is fast becoming a strategic necessity formost commercial banks, as competition increases from private banks and non banking financialinstitutions.Despite the global economic challenges facing the IT software and services sector, the outlookfor the Indian industry remains optimistic.The Reserve Bank of India has also set up a "Working Group on E-banking to examine differentaspects of E-banking. The group focused on three major areas of E-banking i.e. (1) Technologyand Security issues (2) Legal issues and (3) Regulatory and Supervisory issues. RBI hasaccepted the guidelines of the group and they provide a good insight into the securityrequirements of E-banking.The importance of the impact of technology and information security cannot be doubted.Technological developments have been one of the key drivers of the global economy andrepresent an instrument that if exploited well can boost the efficiency and competitivity of thebanking sector. However, the rapid growth of the Internet has introduced a completely new levelof security related problems. The problem here is that since the Internet is not a regulatedtechnology and it is readily accessible to millions of people, there will always be people whowant to use it to make illicit gains. The security issue can be addressed at three levels. The firstis the security of customer information as it is sent from the customers PC to the Web server.The second is the security of the environment in which the Internet banking server and customerinformation database reside. Third, security measures must be in place to prevent unauthorizedusers from attempting to long into the online banking section of the website.From a legal perspective, security procedure adopted by banks for authenticating users needs tobe recognized by law as a substitute for signature. In India, the Information Technology Act,2000, in section 3(2) provides for a particular technology (viz., the asymmetric crypto systemand hash function) as a means of authenticating electronic record. Any other method used bybanks for authentication should be recognized as a source of legal risk..
Regarding the regulatory and supervisory issues, only such banks which are licensed andsupervised and have a physical presence in India will be permitted to offer E-banking productsto residents of India. With institutions becoming more and more global and complex, the natureof risks in the international financial system has changed. The Regulators themselves who willnow be paying much more attention to the qualitative aspects of risk management haverecognized this.Though the Indian Government has announced cyber laws, most corporate are not clear aboutthem, and feel they are insufficient for the growth of E-commerce. Lack of consumer protectionlaws is another issue that needs to be tackled, if people have to feel more comfortable abouttransacting online.Taxation of E-commerce transaction has been one of the most debated issues that are yet to beresolved by India and most other countries. The explosive growth of e-commerce has led manyexecutives to question how their companies can properly administer taxes on Internet sales.Without sales tax, online sellers get a price advantage over brick and mortar companies. Whilee-commerce has been causing loss of tax revenues to the Government, many politicians continueto insist that the Net must remain tax-free to ensure continued growth, and that collecting salestaxes on Net commerce could restrict its expansion.A permanent ban on custom duties on electronic transmissions, international tax rules that areneutral, simple and certain and simplification of state and local sales taxes. The Central Board ofDirect Taxes, which submitted its report in September 2001, recommended that e-commercetransaction should be taxed just like traditional commerce.Also RBI is about to become the first Government owned digital signature certifying Authority(CA) in India. The move is expected to initiate the electronic transaction process in the bankingsector and will have farreaching results in terms of cost and speed of transactions betweengovernments - owned banks.Thus efficiency, growth and the need to satisfy a growing tech-survey consumer base are threeclear rationales for implementing E-banking in India. The four forces-customers, technology,convergence and globalization have the most important effect on the Indian financial sector andthese changes are forcing banks toredefine their business models and integrate technology into all aspect of operation.